January 2012

Connecticut's Unemployment Insurance Trust Fund: A Splintering Work Support

Matt Santacroce

Flaws in the funding mechanism for Connecticut’s unemployment insurance trust fund and in its standard for adequate funding have left the state unprepared for economic recessions and contributed to the insolvency of the trust fund. As Connecticut’s unemployment insurance trust fund faced increased demand during the economic recession, it began paying out benefits at a rate that far exceeded the rate at which employers were paying into the system, leading the State Department of Labor to declare the fund insolvent in October 2009. Since then, the state has had to borrow over $800 million from the federal government just to stay current on legally-obligated unemployment payments. Interest costs from this debt result in higher charges for employers. The analysis finds:

  • Connecticut’s failure to keep its employer-paid unemployment taxes in step with growing wages has contributed to the insolvency of the state’s trust fund.
  • Connecticut’s standard for an adequate unemployment trust fund balance leaves the state unprepared for economic recessions.
  • Connecticut’s insolvency problem is not the result of its unemployment benefit levels, which are among the lowest in the country when compared to average wages.
  • Unemployment taxes in the state are in the middle of the pack nationally.

To avoid future funding problems in the unemployment insurance system, the report recommends increasing employer contributions to better match the growth in wages and adopting a higher standard for the adequacy of the trust fund balance.

Issue Areas:
Budget and Tax, Family Economic Security